hi if stock a has pe of 3 and stock b has pe of 4; in financial terms which stock's PE is higher a or b
I always thought the higher the number the higher the PE but the below phrase in a book confused me
A 14-year study of stocks
between 1957 and 1971, testing the efficient market hypothesis, revealed that
with consistency, lower-PE stocks out-performed higher-PE stocks. The study
included all stocks listed on the New York Stock Exchange (NYSE). Results
showed an average annual rate of return in six groupings:
6lowest PE 16.3%
5 13.6%
4 11.7%
3 9.3%
2 9.5%
1highest PE 9.3%
Putting these results another way, if an investor had placed $1 million in the
lowest PE stock group at the beginning of the period, it would have grown to
$8,282,000. The same amount invested in the highest-PE group would have
grown to only $3,473,000
pl can you advise?
thanks
chetan